An environmentally friendly distillery in Scotland may be forced to cut jobs and abandon efforts to reduce energy use because of new rules defining how traditional malt whisky is made.

The award-winning Loch Lomond Distillery, which makes the UK's third most popular blended whisky, may have to close or change more than half of its production if plans to define malt whisky as spirit made only from old-fashioned pot stills are passed in parliament. Loch Lomond, which produces more than 20 million bottles of High Commissioner whisky a year, has been at the forefront of attempts to modernise a traditional industry with the use of more efficient distillation methods.

It already uses lightweight glass to reduce the amount of packaging sent to landfill and was recently awarded a prize for outstanding achievement by the Carbon Trust after installing a revolutionary system that recycles heat and water used in the distilling process.

For the past two years the company, based in Alexandria near Glasgow, has been producing almost 12m litres of grain alcohol and 4m litres of single malt annually. Some has been produced using a single-still method that cuts CO2 emissions by thousands of tonnes every year. Distillery bosses say they have already smashed government climate change targets for 2011 by cutting energy use by 7%.

However, under the new definition of what constitutes "Scotch malt whisky", due to come into force on 23 November, Loch Lomond will have to close the still or see millions knocked off the value of its product because it can no longer be classified as malt whisky. According to the Scotch Whisky Association (SWA), which helped draw up the amendments to the Scotch Whisky Order 1990, a true malt will only be classed as such if it is made "by batch distillation in pot stills".

Even though Loch Lomond's light medium-weight Speyside-style malt is made with malted barley and looks, tastes and is matured like malt, it cannot be classed as such.

"We have a method that produces a very good malt spirit but are being penalised because we are innovators," said John Peterson, distilling director of Loch Lomond. "We want to make the process better and save considerable amounts of energy. As it is, we prevent more than 1,400 tonnes of CO2 being released every year and they want us to go back to the old inefficient ways.

"The SWA wants us to call it grain whisky, but it's not; if anything that's an even more misleading description. Politicians are quick to shout about climate change and how industry has to find new ways to reduce carbon output, but when we try to do something innovative we get slapped down for it."

However, a spokesman for the SWA said the government had considered every representation made during consultation on the new regulations and concluded such a practice was not traditional.

"The new regulations help to ensure that consumers get clear and consistent information," he said. "It helps to protect Scotch whisky around the world from unfair competition and that will bring significant economic benefits.

"Producing a malt mash in a single still as Loch Lomond Distillery does is simply not traditional practice. Consumers understand that single malt Scotch whisky is produced in a copper pot still and therefore a malt mash distilled in a column still will not be able to continue after the regulations come into force."

Environmental groups, however, have applauded Loch Lomond Distillery and the whisky industry for trying to address the climate change issue. "The Scottish whisky industry is becoming a hotbed of innovation for the adoption of renewable and low-energy technologies, and it's essential that it does so as a major employer and exporter," said Duncan McLaren, chief executive of Friends of the Earth Scotland.